June 2nd, 2020
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When a company is facing the impacts of globalization, experiencing low profitability, losing market share, or lacking the ability to maneuver and compete in the market – it invariably relies on cost reduction as a course of action for survival.
Chapter 1: The Problem
When businesses start to cut costs, one source of reduction is in the area of projects. The problem is, when it comes to project controls and project management, cuts are usually done without strategic vision and alignment – lacking a method or process backed up by data. Consequently, these cuts often fail to deliver expected results in the short term and jeopardize objectives in the medium and long term.
The desire to eliminate excess can lead to bigger problems. While cutting the fat, you can also destroy the muscles, nerves, and tendons of the project controls organization.
The goal of showing better results in the short term often means training programs are eliminated. As a result, you end up paying with higher cost outputs from lower levels of productivity and quality.
Even further, the pressure to reduce costs today leads management to think of automation as an expense rather than an investment in the long term. For the purposes of this article, we are talking about automation that is achieved through joining software + processes + procedures.
Why Cutting Investment in Automation is Bad
If the managers cutting investment in automation were asked to quantify how many people in their organization are needed to manage and collate the information, they would be surprised. And the worst of all is that these same professionals responsible for making reports always deliver information late. Because of the typical manual processes, the reports are historic by the time they arrive. Nobody would care about them simply because they reflect too far in the past.
At the same time, if those managers knew that implementing and automating processes using a project controls and project management system can spot trends and predict the future on projects, they would most definitely be interested.
Predicting the future might sound like magic. But how it works is that the system performs an analysis on the current status of a project, and then makes a future projection of the project’s behavior based on current performance of the project and the behavior of similar groups of past projects.
Areas Needing Improvement
In short, what are the problems that are hindering project performance?
- Poor planning
- Manual and delayed processes
- Information silos/no integration
- High rate of human error
- Data manipulation
- Rigid systems and processes
- Insufficient resources and knowledge to control projects
- Poor reporting visibility and versioning problems
- Non-existent cost center coding
- Attempting to adapt the accounting system to control projects
- Little ability to find and consolidate information
- 90% of the time looking for information and 10% analyzing it
- Decision makers often can’t rely on information
- Too many people spending time on activities that don’t add value to the business
Chapter 2: The Solution
What is the automation of project controls? It’s basically the automation of the search for information by consolidating it into one system that provides real-time reporting.
To achieve this, we need the following automated interfaces:
1) Interface with ERP for bring purchases, contracts and payments.
2) Interface with planning software for dates and physical progress.
These interfaces not only consolidate information in real time, but also enable trending reports and alerts to take corrective actions long before issues occur.
These interfaces allow for significant time savings for staff. It breaks them free of silos of information and allows them to extract what they need quickly.
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Chapter 3: Calculating ROI
Companies we’ve worked with that have implemented project controls automation have seen higher ROI and significant cost savings.
You can calculate the potential ROI of automation in your projects and build the case to justify deployment in your business:
1 ) Map the number of people involved in project management.
The first step is to survey all of the people who work in the management of projects either directly, indirectly, or third parties.
2) Divide the people by business process within the projects
- Project evaluations
- Generation of reports for approval
- Approval of budget
- Control of information to extract from ERP (Purchases and Contracts)
- Control of information to extract from ERP (payments)
- Issuance and update of Excel spreadsheets
- Consolidation of information
- Preparation of daily, weekly and monthly reports.
- Simulation of scenarios
- Control of information that comes from Contractors.
3) Analyze what processes can be automated through implementation of the project management system and assign value.
For the valuation the total per person will be taken from:
- Total salary
- End of year bonuses
- Enterprise costs (luggage, because of work, food, etc)
And then pro-rated by the number of hours saved via the automation of processes for project controls.
4) Calculate of the return and savings
You achieve this by dividing the total of step 3 by the total investment in software + implementation + procedures.
The result of the ROI and savings is always surprising. We have cases of EPC Contractors where the ROI was 6 months and the savings more than $6,000,000 in 5 years. Another example from a mining company found that their ROI was 7 months and the savings in 5 years $2,880,000. For one Oil & Gas company, the ROI was 4 months and the savings in 5 years of $ 5,760,000.
Additionally, there are intangible benefits associated with automating project controls, such as:
- Calculation of trends using the Earned Value methodology
- Opportunity cost for the EPC to initiate claims with end customers
- Better preparation for contractor and owner claims.
- Better prepare for project meetings by having everything in one place.
- Projected cash flow is (Economic and Financial) more accurate
- Eliminate the doubt of which version of files we are working on is accurate.
- Standardizing best practices for project management.
- Avoid information silos
- Avoid data errors
- Spend 90% of the time analyzing and only 10% searching instead of the other way around
Amazingly, the efficiency gains discussed above from automation are only a fraction of the true ROI of an integrated, automated project controls and project management software solution. Once visibility is enabled and Project Management is evaluating trends and root cause issues, the ability to actually improve project cost performance is unlocked!
Discover how technology can be an ally of your company, helping you more efficiently control projects and costs.
For more information, download “The Business Case for Enterprise Project Performance” ebook.